Letters of credit are a useful tool when trading internationally, but they are much more limited in scope than credit insurance.
Single customer protection
The letter is a guarantee from a bank that an agreed payment to a seller will be received on time and in full, which means it only provides protection for international trade and only applies to a single specified customer.
Protection at a cost
In the event of non-payment, the bank steps into the breach. In return for this service, they typically demand both security and a fee. Even when your customer provides these, you are likely to be contributing indirectly.
Limitations of letters of credit
While a letter of credit provides excellent bad debt protection, it is limited to one customer and will only cover international trade. This means that for every new customer, you will need to obtain a letter of credit, which is both time-consuming and costly.
The benefits of credit insurance
Coface Credit Insurance covers all that protection and much more, including:
- Cover for domestic as well as international trade
- Indemnified debt collection service
- Constantly updated financial data on 80 million companies in the UK and worldwide
- Political risk assessments
- Exclusive data on economic and business trends
Contact us in your country to know how we can help your business.